The new conservative forces in ascendance

A set piece of Australian political theatre next week offers Australian taxpayers and voters front-row seats. It’s run by the Council of Australian Governments, or COAG, and this performance dates back 80 years to the Depression-era meetings of the federal government and state leaders. But what makes this meeting on April 13 special, and less predictable, is a heady mix of resurgent non-Labor state governments, the near obliteration of Labor in the Queensland election on March 24, an imminent fiscal crunch, and the still unresolved issue of a federal mining tax.

Throw into that a nervy, accident- prone minority federal Labor government, an Opposition Leader in
Tony Abbott
keen to make common cause with his non-Labor state colleagues, and a media intent on measuring the political pulse 24 hours a day, and you have the ingredients for confrontation, boilover, crisis, stand-off, deadlock, gridlock, whatever.

For seasoned observers, the challenge, as usual, will be to decide what really happened. Surprisingly, what the curtain will finally go down on in the coming two weeks of drama is unclear, and the ending is still being fiercely fought over by the scriptwriters, or federal and state bureaucrats.

In the days of premiers’ conference-loan council meetings, the commonwealth would make an offer to the states, and by the end of the afternoon they would complain and/or reject it.

Then the haggling would begin and the meeting would invariably drag on past its scheduled completion time. Leaks would emerge about “gridlock" and “heated exchanges", and then, with only minutes left to catch the last planes out of Canberra, the prime minister and premiers would emerge beaming and announce a “last minute" agreement.

But federal-state relations are more complex and murky now and the stakes have been raised. The COAG process has its origins in the “new federalism" approach of Labor prime minister
Bob Hawke
and NSW Liberal premier
Nick Greiner
in the late 1980s and early ’90s, when a range of areas, from education to corporate regulation, was thrown into the pot in an effort to establish a stronger, more competitive economy.

This reform process played a significant part in lifting national productivity, which has been lagging, once again, since the early noughties. But Australian realpolitik, 2012-style, makes working out reform issues more difficult.

New Queensland Liberal National Party Premier
Campbell Newman
may not be “as mad as hell" like the fictional television newscaster Howard Beale – played by Australian actor Peter Finch in the American film Network. But Newman is drawing a line in the proverbial COAG sand. He won’t cop “the rough end of the pineapple" in the distribution of federal funds, and his fellow resource-state premier, West Australia’s
Colin Barnett
, claims “the economic power is very much now out of
Julia Gillard
’s control".

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Newman has appointed former Howard government treasurer
Peter Costello
to head a state commission of audit with the effective remit of working out how Queensland can screw the best deal out of Canberra. One key element in this inquiry will be securing more GST money, even though Costello was responsible for designing the original GST carve-up among the states.

Former WA Labor premier
Geoff Gallop
has warned Gillard and Treasurer
Wayne Swan
it would be “quite disastrous" for the federal government to treat the four non-Labor premiers as “enemies" and become “aggressive".

This COAG meeting will illustrate how the federal government and the states have not resolved the fact that they are still duking it out over who runs once traditional state areas such as school education, transport and infrastructure.

More immediate and contentious are the mining tax, carbon tax, and the carve-up among the states of revenue from GST.

Like most federal-state arguments, this one boils down to money and power, and with the mining tax, the struggle is about a federal mining tax operating on top of state mining royalties, although the former is a graduated impost based on revenue, while the latter is linked to volume.

According to Gallop, who is now professor of government at Sydney University, for the federal Labor government to say to the states, particularly Western Australia and Queensland, “you can’t increase royalties or we will cut your infrastructure funding" would be “very bad policy".

“What a great time they [the states] would have with that," Gallop says.

But behind the fighting words, warnings, and pre-COAG posturing, there’s still potential for a surprising consensus to emerge from the meeting of the federal government, six premiers, two territory chief ministers, and their treasurers, finance ministers and officials. “There is room for Julia to rise above the pack," Gallop says.

“The way to solve this [mining tax] issue would be to put it in the broader context of inter-governmental relations. That would be a very clever way to get people on-side, particularly the states."

There may also be some room for manoeuvre in what the COAG Reform Council refers to as the national seamless economy, including proposals for national laws regulating areas like occupational health and safety, disability, and the legal profession.

However, COAG Reform Council chairman
Paul McClintock
believes the increasing heft of non-Labor state governments means there will have to be more consultation between the federal government and the states. A former secretary to cabinet when
John Howard
was prime minister, McClintock has said there is still consensus on the seamless economy reforms, mainly because they would have direct benefits for business.

Gillard is expected to urge the premiers to accelerate the “seamless national economy" policy agenda and will call for a new commitment to co-operate on other areas vital to improving productivity, notably skills reform and deregulation, particularly in the area of federal-state overlap.

The federal government is not listing the proposed minerals resource rent tax for discussion, but will not object if a state such as, say, WA, pushes for its inclusion. Gillard will argue that state royalties should be abandoned as they are not an efficient way of collecting revenue from mining projects.

Labor may have suffered an extraordinary defeat in Queensland, and is sinking in the polls, but Gillard retains room to negotiate. Canberra does hold the purse strings and, the much vaunted “united front" of the four non-Labor states – NSW, Victoria, Queensland and WA – collapsed before it was formed.

And although NSW Premier
Barry O’Farrell
has promoted the anti-federal Labor pact, he insists he’s a pragmatist. He may have an almost Newman-size majority in Parliament, but he has also attracted criticism for failing to use his mandate for change to pursue more aggressive reforms.

O’Farrell’s decision to keep the “poles and wires" electricity transmission and distribution networks under state ownership, at least until his second term, dismayed some.

His penchant for commissioning reviews and setting up advisory bodies, such as Infrastructure NSW – headed by Nick Greiner – has also been a source of frustration for those looking for swifter action. Others say he is laying solid foundations for bolder reforms.

More worrying is O’Farrell’s propensity to buckle under public pressure. He backflipped on a decision to retrospectively cut the rate of the government’s solar feed-in tariff and also backed away from a decision to ban regular unleaded petrol after a leak from cabinet. However, as a former staff member of then federal opposition leader John Howard, O’Farrell’s industrial relations reforms, including capping public sector pay, and stripping powers from the NSW Industrial Relations Commission, earned plaudits from sections of business.

And like Barnett in Western Australia, O’Farrell is threatening to increase NSW mining royalties to offset a claimed $1 billion hit under the carbon tax.

There is also criticism of a lack of oomph in the Victorian Liberal National Party government headed by
Ted Baillieu
. Since its election in November 2010 the government’s signature reforms have mostly been in law and order, and there has not been much else.

This partly stems from Baillieu’s style. He recently said on ABC radio: “Well, indeed, Jon, governments make assessments and they make judgments, and they have budget processes, and that’s what we do, that’s what we undertake, but I wouldn’t talk about any of those in specific terms, and that’s why I was seeking to make some general commentary in response to a question, and there was nothing new in that. I’ve made that commentary before, so in those terms, the story was not new."

So there.

Recent polling suggests the Baillieu government has had one of the shortest honeymoons in history. In response, he bade farewell to long-serving chief of staff Michael Kapel and installed party veteran and key adviser to prime minister Howard,
Tony Nutt
.

The Victorian government has recently increased its efforts to be seen to be “doing something".

Baillieu won a rare majority in both houses of the Victorian Parliament, so he has faced no parliamentary impediment.

He has shredded just about all the previous Labor government’s efforts on climate change and allowed cattle back into the high country, suggesting a conservative orthodoxy at work. But then the Baillieu government backed the retention of the state’s human rights charter, burnishing the Premier’s once celebrated “small l" Liberal credentials.

In Western Australia, Barnett is determined to push through big resource projects.

Often compared with the other “big vision" West Australian Liberal premier Charles Court, Barnett has invested significant political capital in projects such as the Oakajee iron ore port development in the state’s mid-west and Woodside’s $30 billion Browse Basin natural gas hub near Broome.

But both projects are on shaky ground, and Barnett is being forced to defend his hands-on role. He believes the developments are in the longer-term interests of the state, not just the narrow quarterly-reporting timetable of the companies involved, and he’s prepared to wear any hit to his reputation if they fall over.

Closer to home, he has promoted redevelopment of Perth’s waterfront; demanded a new football stadium near
James Packer
’s casino, and overseen the start of a project to sink underground a railway that splits Perth in half.

Barnett’s ambitious program is forecast to see debt top $23 billion in a few years. In addition, there is a proposal to park some of the state’s mining royalties in a future fund. But like federal Labor’s Future Fund, Barnett’s pitch seems to be about being able to sell a compelling message to WA voters about how the government is spreading the state’s mineral wealth.

Meanwhile, in Queensland, the new Premier is fast becoming the action man of the federation.

He is under pressure to show what kind of premier he will be – a reformist such as Greiner or Victoria’s
Jeff Kennett
, or will he take the more cautious path chosen by O’Farrell?

Newman bristles at suggestions he will adopt a more cautious approach but has ruled out more asset sales in his first term. It will be a challenge to alter the course of the state’s projected debt from $62 billion this financial year to $85 billion in 2014-15. Part of Costello’s role in Queensland will be to work with the state Treasury to return the budget to surplus and reclaim the AAA credit rating Queensland lost in 2009.

The Costello commission is expected to provide a range of long-term proposals to help revitalise the state’s economy and may provide an excuse for the LNP government to implement tougher strategies than it promised during the election campaign.

Other policy challenges facing Newman include delivering on campaign rhetoric to restore a better balance between mining (especially coal seam gas) and farming.

Businesses are keen to see how this will work, especially as the $50 billion coal seam gas-liquefied natural gas industry is expected to fuel the state’s economic recovery.

Newman, a former army engineer, loves big infrastructure projects, but his role in the COAG kabuki play will be a different test.